Perhaps the toughest challenge in the financial advisory business, or in any enterprise for that matter, is determining what gives the outstanding performers their edge—and learning how to replicate their success.
The Rydex|SGI AdvisorBenchmaking survey addresses what it takes to be a top financial advisory firm, first by defining the top tier and then by comparing top firms’ practices with those of the entire survey population. This helps all advisors learn effective management strategies and adapt best practices to their own firms.
To determine the top tier, 300-plus RIA firms that participated in the latest AdvisorBenchmaking survey were screened for growth rate, profitability and range of services offered—measures we believe define a quality firm. One metric specifically not considered was firm size; every firm, large or small, can have a business model that fuels growth and profitability and leads to long-term success.
This process identified 45 “top firms,” which as a group enjoyed a significantly higher growth rate in 2010 than did average firms. Their assets increased 50% on median from the prior year, compared with only 18% for the average advisory firm. Top firms posted revenue growth of 25% in 2010, compared with 14% for average firms. Expenses for top firms and average firms grew at about the same rate, but the stronger revenue at top firms improved their profitability to nearly double that of the average firm—31% to 15%, respectively.
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What business-oriented, marketing and investment management practices did these firms have in common that may have helped make them successful?
First, we learned that top firms have a higher target rate for growth. Over the next year, 56% of the top firms target a significantFirst, we learned that top firms level of growth (from 11%-20%), compared with only 43% for the average firm.